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Thinking about retirement, find out the benefits of delaying it

The Treasury Secretary explains MyRA: A ‘starter’ retirement account

 

Are you counting the days until you can say goodbye to your job forever and start enjoying your golden years? While only about half of all Americans say they’re looking forward to retirement, around 18% of Americans retire before age 61, and half of all Americans quit working for good between ages 61 and 65.

Some workers leave the workforce involuntarily because they lose their jobs and can’t find new ones, or because poor health makes working impossible. But many others are lucky enough to have the option of retiring when they’re ready, and on their own terms.

Even if you can hardly wait for the day when you leave work forever, it’s important to be strategic about when you retire so you don’t spend your post-work life worrying about whether your money will run out.

Before you let your boss know you’re ready to start your life as a carefree retiree, consider these five benefits of delaying retirement a little longer.

1. You can save for longer

Working just one extra year can make a big difference in your retirement savings. There are two reasons why a single extra year can matter so much: more compound interest and the chance to take advantage of more tax-free savings.

Once you’re 50 or older, you’re eligible to invest more each year in both your 401(k) and your individual retirement accounts. These extra “catch-up” contributions increase your maximum 401(k) contributions by $6,000 and your maximum IRA contribution by $1,000. This means you’re allowed to invest up to $24,000 in your 401(k) and $6,500 in your IRA, for a total of $30,500 in tax-free investing.

Saving longer also means another year of compound interest earned on your invested funds. If you have a $350,000 nest egg and earn 6%, you’ll have another $21,000 in gains if you wait another year before retiring and starting to draw down your money — and that’s assuming you don’t contribute anything during that last year. Delay for five years, and the difference is staggering: Your $350,000 savings will grow to more than $468,000.

2. You can take Social Security later

Working longer means you can wait to start taking Social Security benefits. This can boost your monthly benefit for the rest of your life.

The Social Security Administration determines your “full retirement age” — when you get 100% of the monthly benefits you’ve earned — based on when you were born. If you were born between 1943 and 1954, your full retirement age is 66. If you were born after 1960, your full retirement age is 67.

If you take benefits at 62 instead of waiting for your full retirement age, your benefit is reduced by around 30%. The closer you get to full retirement age, the smaller the reduction in benefits. And if you wait to take benefits until after you’ve reached your full retirement age, your benefits start to increase.

You’ll receive around 8% more in benefits for each full year you wait after you’ve reached your full retirement age. This means if you wait until age 70, you’ll receive 132% more than you would have if you’d retired at 62. Once you reach…

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